Cambridge A Level Accounting 9706 — 2024 May/June Paper 3 · Variant 2

This document has 16 pages. Any blank pages are indicated. [Turn over Cambridge International AS & A Level * 6 5 7 6 6 5 2 0 5 4 * ACCOUNTING 9706/32 Paper 3 Financial Accounting May/June 2024 1 hour 30 minutes You must answer on the question paper. You will need: Insert (enclosed) INSTRUCTIONS ● Answer all questions. ● Use a black or dark blue pen. ● Write your name, centre number and candidate number in the boxes at the top of the page. ● Write your answer to each question in the space provided. ● Do not use an erasable pen or correction fluid. ● Do not write on any bar codes. ● You may use an HB pencil for any diagrams, graphs or rough working. ● You may use a calculator. ● International accounting terms and formats should be used as appropriate. ● You should show your workings. INFORMATION ● The total mark for this paper is 75. ● The number of marks for each question or part question is shown in brackets [ ]. ● The insert contains all of the sources referred to in the questions. DC (PB (JH)) 326874/3 © UCLES 2024

2 9706/32/M/J/24 © UCLES 2024 1 Read Source A in the insert. (a) State two differences between a receipts and payments account and an income and expenditure account. Receipts and payments account Income and expenditure account 1 … … … … … … 2 … … … … … … [4]

3 9706/32/M/J/24 © UCLES 2024 [Turn over (b) Prepare the café’s statement of profit or loss for the year ended 31 December 2023, showing the value of stolen cash in the expenses section. … … … … … … … … … … … … … … … … Workings: [10]

4 9706/32/M/J/24 © UCLES 2024 (c) Prepare the Club’s income and expenditure account for the year ended 31 December 2023. … … … … … … … … … … … … … … Workings: [6]

5 9706/32/M/J/24 © UCLES 2024 [Turn over Additional information The committee members want to improve the security of the club. They have two options. Option 1 Installing a security system at a cost of $120 000, followed by an annual maintenance fee of $1000. Option 2 Recruiting a daytime security guard at an annual salary of $30 000. (d) Advise the committee members which is the better option. Justify your answer. … … … … … … … … … … … … … … … [5] [Total: 25]

6 9706/32/M/J/24 © UCLES 2024 2 Read Source B in the insert. (a) Explain how to correct the errors made by the accounts clerk in relation to depreciation on buildings and valuation of inventory. Support your answer with calculations and with reference to the relevant international accounting standards. Use the space provided to show your workings. (i) depreciation on buildings … … … … … … … … … … … … Workings: [6]

7 9706/32/M/J/24 © UCLES 2024 [Turn over (ii) valuation of inventory … … … … … … … … … … … … … … … … Workings: [8]

8 9706/32/M/J/24 © UCLES 2024 (b) Prepare the corrected statement of changes in equity for the year ended 31 December 2023. A total column is not required. … … … … … … … … … … … … … … … [5]

9 9706/32/M/J/24 © UCLES 2024 [Turn over (c) Prepare the corrected statement of financial position at 31 December 2023. … … … … … … … … … … … … … … … … … … … … … … … … … … [6] [Total: 25]

10 9706/32/M/J/24 © UCLES 2024 3 Read Source C in the insert. (a) Explain three benefits of a merger. 1 … … … … 2 … … … … 3 … … … … [6]

11 9706/32/M/J/24 © UCLES 2024 [Turn over (b) Complete the following statement to calculate the capital account balance of each partner in the new partnership at 1 January 2023. Ray $ Steve $ Tina $ Balance at 31 December 2022 198 000 177 000 186 000 Balance at 1 January 2023 Workings: [10]

12 9706/32/M/J/24 © UCLES 2024 (c) Prepare the statement of financial position of the new partnership at 1 January 2023. … … … … … … … … … … … … … … … … … … … … … … … … … … … [4]

13 9706/32/M/J/24 © UCLES 2024 Additional information The profit of the new partnership for the year ended 31 December 2023 was $150 000. (d) Discuss whether or not Tina has made the right decision to merge her business with Ray and Steve’s business. Justify your answer. … … … … … … … … … … [5] [Total: 25]

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16 9706/32/M/J/24 © UCLES 2024 Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge Assessment International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cambridgeinternational.org after the live examination series. Cambridge Assessment International Education is part of Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge. BLANK PAGE

This document consists of 19 printed pages. © Cambridge University Press & Assessment 2024 [Turn over Cambridge International AS & A Level ACCOUNTING 9706/32 Paper 3 Financial Accounting May/June 2024 MARK SCHEME Maximum Mark: 75 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners’ meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge International will not enter into discussions about these mark schemes. Cambridge International is publishing the mark schemes for the May/June 2024 series for most Cambridge IGCSE, Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level components.

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 2 of 19 Generic Marking Principles These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the specific content of the mark scheme or generic level descriptions for a question. Each question paper and mark scheme will also comply with these marking principles. GENERIC MARKING PRINCIPLE 1: Marks must be awarded in line with:  the specific content of the mark scheme or the generic level descriptors for the question  the specific skills defined in the mark scheme or in the generic level descriptors for the question  the standard of response required by a candidate as exemplified by the standardisation scripts. GENERIC MARKING PRINCIPLE 2: Marks awarded are always whole marks (not half marks, or other fractions). GENERIC MARKING PRINCIPLE 3: Marks must be awarded positively:  marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the scope of the syllabus and mark scheme, referring to your Team Leader as appropriate  marks are awarded when candidates clearly demonstrate what they know and can do  marks are not deducted for errors  marks are not deducted for omissions  answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the question as indicated by the mark scheme. The meaning, however, should be unambiguous. GENERIC MARKING PRINCIPLE 4: Rules must be applied consistently, e.g. in situations where candidates have not followed instructions or in the application of generic level descriptors.

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 3 of 19 GENERIC MARKING PRINCIPLE 5: Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range may be limited according to the quality of the candidate responses seen). GENERIC MARKING PRINCIPLE 6: Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should not be awarded with grade thresholds or grade descriptors in mind.

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 4 of 19 Social Science-Specific Marking Principles (for point-based marking) 1 Components using point-based marking:  Point marking is often used to reward knowledge, understanding and application of skills. We give credit where the candidate’s answer shows relevant knowledge, understanding and application of skills in answering the question. We do not give credit where the answer shows confusion. From this it follows that we: a DO credit answers which are worded differently from the mark scheme if they clearly convey the same meaning (unless the mark scheme requires a specific term) b DO credit alternative answers/examples which are not written in the mark scheme if they are correct c DO credit answers where candidates give more than one correct answer in one prompt/numbered/scaffolded space where extended writing is required rather than list-type answers. For example, questions that require n reasons (e.g. State two reasons …). d DO NOT credit answers simply for using a ‘key term’ unless that is all that is required. (Check for evidence it is understood and not used wrongly.) e DO NOT credit answers which are obviously self-contradicting or trying to cover all possibilities f DO NOT give further credit for what is effectively repetition of a correct point already credited unless the language itself is being tested. This applies equally to ‘mirror statements’ (i.e. polluted/not polluted). g DO NOT require spellings to be correct, unless this is part of the test. However spellings of syllabus terms must allow for clear and unambiguous separation from other syllabus terms with which they may be confused (e.g. Corrasion/Corrosion) 2 Presentation of mark scheme:  Slashes (/) or the word ‘or’ separate alternative ways of making the same point.  Semi colons (;) bullet points (•) or figures in brackets (1) separate different points.  Content in the answer column in brackets is for examiner information/context to clarify the marking but is not required to earn the mark (except Accounting syllabuses where they indicate negative numbers).

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 5 of 19 3 Calculation questions:  The mark scheme will show the steps in the most likely correct method(s), the mark for each step, the correct answer(s) and the mark for each answer  If working/explanation is considered essential for full credit, this will be indicated in the question paper and in the mark scheme. In all other instances, the correct answer to a calculation should be given full credit, even if no supporting working is shown.  Where the candidate uses a valid method which is not covered by the mark scheme, award equivalent marks for reaching equivalent stages.  Where an answer makes use of a candidate’s own incorrect figure from previous working, the ‘own figure rule’ applies: full marks will be given if a correct and complete method is used. Further guidance will be included in the mark scheme where necessary and any exceptions to this general principle will be noted. 4 Annotation:  For point marking, ticks can be used to indicate correct answers and crosses can be used to indicate wrong answers. There is no direct relationship between ticks and marks. Ticks have no defined meaning for levels of response marking.  For levels of response marking, the level awarded should be annotated on the script.  Other annotations will be used by examiners as agreed during standardisation, and the meaning will be understood by all examiners who marked that paper.

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 6 of 19 ANNOTATIONS The following annotations are used in marking this paper and should be used by examiners. Annotation Use or meaning  Correct and relevant point made in answering the question. × Incorrect point or error made. LNK Two statements are linked. REP Repeat A An extraneous figure N0 No working shown AE Attempts evaluation R1 Required item 1 R2 Required item 2 OF Own figure EVAL Evaluation NAQ Not answered question BOD Benefit of the doubt given. SEEN Noted but no credit given Highlight Highlight Off page Comment Off page comment

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 7 of 19 Abbreviations and guidance The following abbreviations may be used in the mark scheme: OF = own figure. The answer will be marked correct if a candidate has correctly used their own figure from a previous part or calculation. W = working. The working for a figure is given below. Where the figure has more than one mark associated with it, the working will show where individual marks are to be awarded. CF = correct figure. The figure has to be correct i.e. no extraneous items have been included in the calculation Extraneous item = an item that should not have been included in a calculation, including indirect expenses such as salaries in calculation of gross profit when there is one OF mark for gross profit’ Curly brackets, }, are used to show where one mark is given for more than one figure. If the figures are not adjacent, each is marked with a curly bracket and a symbol e.g. }* row = all figures in the row must be correct for this mark to be awarded Marks for figures are dependent on correct sign/direction Accept other valid responses. This statement indicates that marks may be awarded for answers that are not listed in the mark scheme but are equally valid.

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 8 of 19 Question Answer Marks 1(a) State two differences between a receipts and payments account and an income and expenditure account. Receipts and payments account Income and expenditure account Only cash / monetary items are recorded (1) Non-cash items such as depreciation are recorded (1) The balance of the account is either cash at bank or overdraft at the year end / bank (1) The balance of the account is either surplus or deficit for the year / income statement (1) Receipts and payments are recorded regardless of the year they belong to i.e cash basis of accounting (1) Revenue and expenses related to the current year only are recorded i.e. accrual basis of accounting (1) Items of capital nature and revenue nature are recorded (1) Only items of revenue nature are recorded (1) Max 4 Accept other valid responses 4

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 9 of 19 Question Answer Marks 1(b) Prepare the café’s statement of profit or loss for the year ended 31 December 2023, showing the value of stolen cash in the expenses section. $ $ Sales revenue 264 00 0 Opening inventory 11 200 Purchases W1 178 200 (1) Closing inventory (balancing) (13 400) (1) OF Cost of sales 176 00 0 (1) Gross profit W2 88 000 (1) Cash stolen W3 1 700 (2) Café wages 34 800 Coffee machine written off W4 1 200 (2) Depreciation – café equipment W5 7 500 (1) Café expenses 15 500 60 700 Café profit for the year 27 300 (1) OF W1 $29 800 + $172 000 – $23 600 = $178 200 W2 $264 000  50/150 = $88000 W3 $264 000 – ($34 800 + $15 500 + $212 000) (1) = $1 700(1OF) W4 $3 000 – 1 800 (1) = $1 200 (1OF) W5 ($36 000 + $4 500 – $3 000)  20% = $7 500 10

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 10 of 19 Question Answer Marks 1(c) Prepare the Club’s income and expenditure account for the year ended 31 December 2023. Income and expenditure account for the year ended 31 December 2023 $ Subscriptions W1 338 400 (3) Profit from café 27 300 365 700 Club expenses W2 283 700 (1) Club equipment depreciation W3 32 400 (1) Subscription written off 2 400 318 500 Surplus for the year 47 200 (1) OF W1 ($4 000 + $2 400 + $336 000 + $5 600) (1) – ($4 800 + $1 600 + $3 200) (1) = $338 400 (1) OF W2 $5 800 + $3 900 + $274 000 = $283 700 W3 ($335 000 + $25 000 – $144 000)  15% = $32 400 6

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 11 of 19 Question Answer Marks 1(d) Advise the committee members which is the better option. Justify your answer. Option 1 – max (2) The club does not have enough cash to pay the whole amount as it only has a cash balance of $116 600 at 31 December 2023 (1). Loan has to be raised and the club has to pay interest expense (1). It’s a capital expenditure and paid once and for all (1). The annual maintenance is minimal (1). This increases the assets value of the club (1). More reliable as no need for a human presence. (1) Susceptible to breakdowns / hacking (1) Option 2 – max (2) Members may feel safer due to physical presence (1). The club is still subject to the threat at nighttime (1). Paying $30 000 each and every year is a heavy financial burden to the club (1). Option 2’s annual expense of $30 000 is higher compared with Option 1’s $18 000 for the first year and $16 300 for the second year (1). Decision supported by a comment (1) Accept other valid responses. 5

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 12 of 19 Question Answer Marks 2(a)(i) Explain how to correct the following errors made by the accounts clerk. Support your answer with calculations and with reference to the relevant international accounting standards. (i) depreciation on buildings IAS 8 (1) Accounting policies, changes in accounting estimates and errors states that a new accounting policy should be applied retrospectively (1). $1 600 ($80 000  2%) (1) depreciation charge for 2022 should be deducted from the opening retained earnings (1) and $1 600 depreciation charge for 2023 should be deducted from profit for the year (1) and non- current assets (1). 1 mark for IAS 4 marks for explanations 1 mark for calculation 6

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 13 of 19 Question Answer Marks 2(a)(ii) (ii) valuation of inventory Calculations: A further analysis of each category of inventory is: Estimated Commissio n Invento ry Category Cost selling price 5% NRV value $ $ $ $ $ A 30 500 45 000 2 250 42 750 30 500 (1) B 5 900 6 000 300 5 700 5 700 (1) C 3 800 3 000 150 2 850 2 850 (1) 40 200 54 000 39 050 Difference in inventory value = $14 950 / ($54 000 – $39 050) (1) OF. IAS 2 (1) Inventories states that inventory should be valued at the lower of cost and net realisable value (1). This is in compliance with the prudence concept (1). Net realisable value is the estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale (1). The valuation would be corrected by considering each individual category (1). The profit for the year will be reduced (1). 4 marks for calculations 1 mark for IAS 3 marks max for explanations 8

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 14 of 19 Question Answer Marks 2(b) Prepare the corrected statement of changes in equity for the year ended 31 December 2023. The total column is not required. Share Share Revaluation Retained capital premium reserve earnings $ $ $ $ Balance b/d W1 400 000 32 000 149 400 (1) OF Profit for the year W2 105 450 (2) New issue 60 000 18 000 Bonus issue 40 000 (40 000) (1) Interim dividend paid (60 000) Revaluation of land 35 000 (1) 500 000 10 000 35 000 194 850 W1 $151 000 – $1 600=$149 400 W2 $122 000 – ($1600 + $14950) (1) OF = $105 450 (1) OF 5

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 15 of 19 Question Answer Marks 2(c) Prepare the corrected statement of financial position at 31 December 2023. Corrected statement of financial position at 31 December 2023 $ $ Non-current assets ($642000 – $1 600  2) 638 800 (1) OF Current assets Inventory 39 050 (1) OF Trade receivables 226 000 Cash and cash equivalents 60 500 Total current assets 325 550 Total assets 964 350 Equity Ordinary shares 500 000 Share premium 10 000 Revaluation reserve 35 000 Retained earnings 194 850 739 850 (1) OF Non-current liabilities 8% debenture 50 000 (1) Current liabilities Trade payables 152 000 Other payables $63 000 – ($42 500 – 2 000) (1) 22 500 (1) OF Total current liabilities 174 500 Total equity and liabilities 964 350 6

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 16 of 19 Question Answer Marks 3(a) Explain three benefits of a merger. Benefits of a merger:  Economies of scale / synergy (1) taking advantage of bulk buying discounts / reduction of cost / higher profit (1)  Pooling of experience / skill / resources (1) as new owners may bring new experience / skills / resources (1)  Diversification of products / services (1) will open up new / different markets (1)  Vertical integration / division of work (1) gives better control of production / sales (1)  Reduce competition / increase market share (1) to increase sales / profit (1). Max 3 benefits  2 marks (1 mark for benefit and 1 mark for development) Accept other valid responses 6

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 17 of 19 Question Answer Marks 3(b) Complete the following statement to calculate the capital account balance of each partner in the new partnership on 1 January 2023. Ray Steve Tina $ $ $ Balance at 31 December 2022 198 000 177 000 186 00 0 Goodwill W1 83 000 (1) 83 000 (1) 46 000 (1) Adjustment of assets value 20 000 (1) 20 000 (1) 17 500 (1) Goodwill eliminated W2 (84 800) (1) OF (84 800) (1) OF (42 400 ) (1) OF Capital account at 1 January 2023 216 200 195 200 207 100 (1) OF row W1 Ray and Steve average profit ($97 000 + $74 000 + $78 000)/3 = $83 000; goodwill 2  $83 000 = $166 000 Ray’s share $166 000  50% = $83 000 Steve’s share $166 000  50% = $83 000 Tina’s average profit ($19 000 + $22 000 + $28 000)/3=$23 000; goodwill 2  $23 000 = $46 000 W2 Total goodwill $166 000 + $46 000 = $212 000 Ray $212 000  40% = $84 800 Steve $212 000  40% = $84 800 Tina $212 000  20% = $42 400 10

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 18 of 19 Question Answer Marks 3(c) Prepare the statement of financial position of the new partnership on 1 January 2023. Statement of financial position at 1 January 2023 $ $ Non-current assets Land and buildings 410 000 (1) Plant and machinery 99 000 509 000 Current assets Inventory 56 500 (1) Trade receivables 111 000 (1) Cash at bank 30 000 197 500 Total assets 706 500 Capital account Ray 216 200 } Steve 195 200 } Tina 207 100 } 618 500 (1) OF Current liabilities Trade payables 88 000 Total capital and liabilities 706 500 4

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2024 © Cambridge University Press & Assessment 2024 Page 19 of 19 Question Answer Marks 3(d) Discuss whether or not Tina has made the right decision to merge her business with Ray and Steve’s business. Justify your answer. For (Max 2) Tina’s share of profit is $30 000 ($150 000  20%) (1). The shared profit exceeds the annual profit when she was in the sole trader business (1). Tina’s business profit is on a declining trend (1). Against (Max 2) She may have conflicts with other partners (1). According to the profit and loss sharing ratio, she is only a minor partner (1) and has little control (1). Decision supported by a comment (1) Accept other valid responses. 5